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5
Creating partnerships with nonprofits

Businesses have a long tradition of contributing to the health and vitality of the community by supporting local nonprofit organizations, such as human service agencies, environmental groups, schools, and youth organizations. For some business leaders the motivation to give is rooted in a genuine interest in supporting the community. For others, contributions are a public relations tool undertaken out of pure self-interest. We suggest that you can embrace both motivations.

You might ask, “Who cares what the motivation is?” We believe that motives do matter; they reflect your company’s values, which last through changes in personnel and programs. The key is finding a contribution strategy that communicates the values you are trying to promote. What is your message to your employees if giving is based solely on the amount of media attention you receive? How likely are your customers to remember your community involvement if you are supporting causes completely unrelated to your business? We hope this chapter will inspire you to design a community program that allows you both to give from the heart and to maximize the impact of your contributions.

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Of the three sectors of our society—public, private, and nonprofit—the nonprofit sector is arguably changing the most. This change is in response to mounting community needs as well as major funding challenges resulting from

• Tightened local and federal government budgets
• Availability of less money from foundations because of lower returns from their investment portfolios
• A proliferation of nonprofits (all vying for shrinking resources) trying to fill the void left by reductions in government social service programs
• Increased expectations of effectiveness and accountability from funders

These challenges mean nonprofits are being asked to do more with less. In response, traditional nonprofits are working to be more businesslike in their management and more innovative in raising revenue. This has led to the emergence of “enterprising nonprofits.” Recently hundreds of social entrepreneurs have begun operating nonprofits that resemble for-profit enterprises. These nonprofits sell products to increase revenue, market and promote themselves like businesses, and are managed much like for-profit businesses.

This transformation of traditional nonprofits and the birthing of new enterprising nonprofits is evidence of a major change in the nonprofit world. Simultaneously, values-driven businesses are emerging that want to do more for the community and do it better.

The convergence of these two forces—enterprising nonprofits and values-driven entrepreneurs—opens up exciting opportunities for collaboration. Innovative business-nonprofit partnerships are making a substantial difference in the quality of community life. They are multiplying in numbers and expanding in scope. These partnerships are not based on the old model of dependency but on collaboration, where the community, the nonprofit, and the company all are engaged and all benefit.

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How do you go about partnering with nonprofits, and how do you develop a strategy for giving? The first step is to answer questions such as these:

• What are the most pressing needs in your community?
• What unique qualities of your business can be leveraged to help you meet the community’s needs?
• What activities and programs will encourage staff participation and team building and reflect company values?
• What giving strategy will have the most impact on customer loyalty, goodwill in the community, and increased sales?

The second step is to consider structural options. Successful business-nonprofit partnerships can take many forms, and most include one or more of the following:

• Making financial contributions to a nonprofit. The most common form of business-nonprofit partnership involves a business (or a related corporate foundation) making financial gifts to a nonprofit.
• Making in-kind contributions. Engaging a company’s staff, vendors, and customers in providing ongoing assistance to a nonprofit in the form of noncash resources can have a profound effect on both organizations. For example, nonprofits might benefit from product donations, the use of a company’s conference room, consulting time from a company’s marketing staff, or the donation of used equipment.
• Adopting a nonprofit. Focusing financial and in-kind contributions on a specific nonprofit over a long period of time can have a transformational impact on your corporate culture and the nonprofit.102
• Creating a nonprofit. Building a new nonprofit helps ensure a company remains engaged over the long run. Founding, guiding, and taking ownership of a compelling mission is highly energizing for the company’s staff and other stakeholders and results in a strong and mutually beneficial relationship.
• Starting a for-profit business that’s owned by a nonprofit. When a business is owned by a nonprofit organization, all of the business’s practices, strategies, and profits serve the nonprofit mission rather than profit-driven shareholders.
• Implementing cause-related marketing. Using your product or service to promote a specific cause or nonprofit is known as cause-related marketing, or as Tom Chappell of Tom’s of Maine refers to it, common good partnerships. While some companies selfishly use the name of a respected nonprofit to upgrade their own images (a tactic known as greenwashing), cause-related marketing can communicate an important message to thousands or even millions of people. Achieving similar exposure via purchasing advertisements would be well beyond the means of most nonprofits.

The final step in developing your giving strategy involves studying examples of other businesses that have done this successfully. Never miss an opportunity to learn from others! The following pages share the Hanna Andersson story and chronicle other inspiring accounts of business-nonprofit partnerships. Each one illustrates ways a business can work to benefit not only the company but the community.

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Partnering with Nonprofits: Hanna Andersson, Portland, Oregon

Hanna Andersson is a $95 million retail clothing business known for its high-quality products, family-friendly employee policies, and innovative contributions to the community through nonprofit and school partnerships. Hanna’s deep community involvement was not a part of its original road map. Rather, it evolved from the principle—a commitment to quality—on which Tom and Gun Denhart founded the company in 1983. In their quest to offer high-quality children’s clothing, the Denharts listened to customers, staff, and other stakeholders. This feedback was crucial to the evolution of their business.

From the outset, the Denharts wanted to create a productive, positive, and healthy working environment where employees did not have to leave their values at the door. While Hanna could pay only minimum wage in the early years, it advertised jobs that offered “more than a paycheck.” As a result of genuinely listening to employees, the Denharts initiated many family-friendly programs and benefits, including

• Payment of a significant portion of their employees’ child-care costs
• Flextime scheduling so staff members could create schedules that fit a variety of personal lifestyle needs
• Public transportation subsidies
• In-house yoga classes
• Paid time for volunteering in the community

At the time, these practices were quite unusual and they helped Hanna recruit and retain loyal employees. A great example of how these exceptional benefits were developed is the policy of subsidizing child care. Gun’s original idea was to start a child-care center in the office. When speaking with employees, however, she found some wanted day care close to home, while others had children who were happy at their current day-care centers. Gun responded by designing a flexible program that allowed employees to more easily afford day-care programs that fit their needs. This program gave employees more peace of mind, enabled them to focus on their work, and most importantly, gave their children a good start in life.

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In Hanna’s second merchandise catalog, the Denharts introduced a marketing strategy that eventually became the cornerstone of the company’s community involvement—Hannadowns (a play on hand-me-downs). The idea was to show that the clothing was so well made it would last beyond one child. Through the Hannadowns Clothing Donation Program, customers could send used clothing to Hanna and receive a 20 percent credit toward their next purchase. Hanna donated these clothes to nonprofits that served children in need.

The program became extraordinarily popular and took on a life of its own. In fact, it became a major driver of Hanna’s growth. As the company grew, so did Hannadowns. Over the fifteen years of the program, Hanna employees sorted through stacks of donation requests from nonprofits and donated more than one million pieces of clothing to dozens of organizations. Recycling Hanna clothing eliminated waste, helped children in need, increased employee fulfillment, and fostered customer loyalty.

Having witnessed how Hannadowns helped Hanna’s national reputation and sales while assisting those in need, in 1992 the company began a program to share its financial and human resources that became known as Hannashare. Gun invited an intern from an MBA program focused on socially responsible summer jobs to develop a framework for the charitable giving. The framework included two components. First, Hanna joined a growing movement of socially responsible companies committed to donating 5 percent of pretax profits to nonprofit organizations. Hanna focused its giving on children and families in need. While some years Hanna made very little or even no money, it continued to provide whatever funds, clothing, and employee time it could offer.

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The second component was encouraging employee financial and in-kind donations to nonprofits. Hanna instituted two employee benefits. The Volunteer benefit paid for up to sixteen hours of volunteer hours per year, and the Employee Match benefit donated up to $500 annually per employee for his or her donations to any nonprofit of the employee’s choosing. This giving framework was used for over a decade as Hanna became known for its commitment to the community and to local nonprofits through Hannashare and Hannadowns.

Eventually, the Hannadowns program grew too large to sustain. As you’ll read below, Hanna made the agonizing decision to discontinue Hannadowns. Yet the program left its imprint on Hanna’s mission, and the principle of pursuing the double bottom line—making a profit and giving back to the community— continued and flourished in new ways.

Apply Business Smarts to Your Giving

In 2001 Hanna formalized the Hannashare program by creating the Hanna Andersson Children’s Foundation. With no experience in the formal grant-making process, however, the foundation made some mistakes along the way, the biggest of which was cramming too many nonprofit groups into the allocation process.

From the outset, the foundation aimed to involve employees deeply in its work. In an effort to appeal to as many employees as possible, the foundation funded a wide variety of children’s groups—everything from early childhood learning, child care, and early intervention for children with disabilities to after-school programs, teen programs, and support for children affected by homelessness, substance abuse, child abuse, mental health issues, and AIDS and other medical conditions.

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At a two-hour allocation meeting, employees were able to make a case for their favorite nonprofits. However, far too many presentations were made and too much information was given for people to process. The large number of nonprofit organizations created another problem. With so many groups to visit in the first few grant cycles, the program did not have enough employees to ensure every organization received a fair review.

To rectify this problem, the foundation narrowed its focus to supporting children from birth to age ten. It also gradually reduced the number of major grants awarded from twenty-one to ten. Now that the number of nonprofits has been decreased, the foundation is usually able to send two or three people on each site visit to ensure it receives balanced feedback.

Through the Hannashare program and the Hanna Andersson Children’s Foundation, the company is supporting local nonprofits in communities where it does business. Hanna’s employees are integrally involved in shaping the foundation’s giving priorities, which fosters pride in a company that gives its employees an opportunity to engage in and help the community.

Balancing Profitability with a Costly Social Mission Program

In the mid-1990s, Hanna had grown into a $50 million business and Hanna was fast becoming an icon in the socially responsible business movement. Gun was featured on the cover of Inc. magazine, and Hanna was touted in other publications as a business model for the future. The Denharts never dreamed their little catalog business would grow to this size, and they certainly wouldn’t have projected the dramatic increase in the amount of used clothing donated by customers nor what its costs might become.

Managing Hannadowns wasn’t initially complicated because the volume was relatively small and everyone could pitch in when needed. However, while the used clothes clearly benefited vulnerable children, time was required to receive, account for, and deliver them to children’s charities. The burgeoning management costs associated with these tasks were on top of the 20 percent return credits given to customers. The program that was the source of many customers’ strong ties to Hanna was rapidly moving from a major company asset to a mounting liability.

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In 1995 Hanna conducted market research to explore the possiblity of lowering the return credit percentage to keep the program viable. The study revealed that 95 percent of customers were familiar with Hannadowns, and 18 percent said they would change their opinion of Hanna if the credit was lowered. Hanna accepted the study’s recommendation to maintain the current program.

However, that year the company lost money for the first time. This forced Hanna to cut 10 percent of its staff positions, but the company decided to leave the program intact.

By 1997 Hanna was still only marginally profitable, and the total Hannadowns credit had increased to $700,000. The handwriting was on the wall. The high costs of this in-kind program were putting the survival of the company at risk.

Gun knew that any change to the program had to be handled with great care. In early 1998 Hanna created a working group with employees from all parts of the company to explore options. They took a hard look at the program and considered what dismantling it might feel like. Digging into the numbers, they realized that only 4 percent of customers used the credit, and they asked themselves why all the other customers should subsidize a small percentage of customers.

Gun began thinking that encouraging customers to donate their clothes directly to nonprofits might be an option. Not only would it be more efficient, but it would conserve energy by reducing transportation and connect customers to local nonprofit organizations. The company would save money by discontinuing the credit and avoiding processing expenses, which would result in higher profits and more money available for grants to nonprofits.

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These arguments were all completely logical, but emotionally the decision was gut-wrenching. Furthermore, the group knew the company risked a public relations disaster. Hanna had become famous for—and in some ways defined by— Hannadowns. Customers loved the program, which had generated a lot of publicity through the media and awards. When Hanna failed to mention Hannadowns in just one catalog in 1992, sales plummeted—fueling speculation that customers responded less positively to Hanna without the program.

With heavy hearts, the working group in the end decided to discontinue the credit as of January 1999. Gun spent hours talking to employees, customers, and nonprofits about the reason for the change. The working group composed a letter describing the closure, suggesting that customers could donate their used Hanna clothing to charities in their community, and highlighting Hanna’s policy of donating 5 percent of profits to children in need. Finally, they wrote a list of anticipated reactions from customers and the press and trained call center representatives on how to respond.

So what happened? Although Gun had worried that this closure would damage Hanna’s good name, the actual negative customer response was minimal. And even more surprising to her, the year ended with a 17 percent growth in sales and a substantial increase in profitability.

The nonprofits that had received Hannadowns were of course very disappointed. However, Hanna continued to donate excess clothing to some of them. A few years later, the company began building partnerships that allowed it to remain closely connected with the nonprofit community serving children in need and created a foundation bearing the company’s name.

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Best Practices in Partnering with Nonprofits

While Hanna Andersson has chosen to support a number of local nonprofits through varied types of contributions, another strategy for community involvement is for a company to build a partnership with one organization that is closely aligned with the company’s mission.

Adopting a Nonprofit: Wild Planet Toys, San Francisco, California

Danny Grossman cofounded his San Francisco–based company, Wild Planet Toys, with a mission to spark the imaginations of children. The company has won dozens of awards, not only for its toys but also for its community service. This success is rooted in Wild Planet’s commitment to finding innovative ways to connect its employees with the community and to integrate the community, namely children, into its product development, giving the company a competitive advantage.

From the beginning, Danny was committed to giving back to the community. His early efforts included holding “playgroups” at nearby nonprofits where he would talk with children about inventing toys. During one such visit to Mercy Charities, a boy drew a picture of a device for mounting flashlights on someone’s fingers. Wild Planet’s design team loved the idea; the device is now known as Wild Planet’s Spy Light Hand. The nine-year-old boy was the inspiration for Wild Planet’s annual Kids Inventor Challenge, which asks children to submit toy ideas; the best inventions are produced and marketed, with royalties going to the young inventors.

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The successful visit at Mercy Charities led Wild Planet to think about developing ongoing relationships with community organizations. If a child could draw a creation like the Spy Light Hand after one conversation, imagine what might grow out of regular visits. Danny and his staff selected an after-school program near their office and began visiting for monthly projects. They all enjoyed the activities, but Danny began to question their strategy—or lack of one. How were these visits impacting the children? How did the relationship with the nonprofit align with Wild Planet’s philanthropic giving program? Was the nonprofit committed to a long-term partnership? How could he leverage this to be a competitive advantage?

Danny and his chief operating officer, Jennifer Chapman, decided to develop a more strategic approach to community involvement. Wild Planet wanted to connect with its target audience—eight- to eleven-year-old children—while dovetailing this effort with its philanthropic giving, which focused on atrisk children. Furthermore, it made sense to tie in the already successful Kids Inventor Challenge. Danny and Jennifer had also learned the importance of finding an agency where the staff members were committed to the partnership and to Wild Planet’s mission.

After extensive outreach efforts, they found the Beacon Centers, a highly reputable network of after-school programs, which seemed to be a perfect fit for Wild Planet’s new strategy. The Beacon Centers served the right population, and the director was prepared to provide the staff resources necessary to make a partnership work. Hesitant to make a long-term commitment too early, Wild Planet began with a one-year pilot program. The Inventor Invasion was set up as a ten-session after-school program in which Wild Planet employees volunteered to work with children through the invention process from brainstorming to prototyping. Beacon Centers’ staff managed the program.

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The Inventor Invasion was extremely successful. Wild Planet employees enjoyed their volunteering and felt they gained valuable knowledge from the children that they could use back in the office. Beacon Centers’ staff felt the program had positive results for the children and committed to a second year. The children loved the program and demonstrated the enhanced creativity that Wild Planet had hoped for. Wild Planet agreed to continue with the partnership and contribute the funds needed to support the program. The Inventor Invasion is now entering its third year, and Wild Planet hopes to expand it to more centers in the near future.

By focusing its charitable resources on a single strategic partnership, Wild Planet was able to develop a top-notch program that benefited the company and the community. For those companies that aim to invest substantial resources and want to make a more profound difference, however, a common approach is to create a new nonprofit.

Creating Horizons for Homeless Children: Bright Horizons Family Solutions, Boston, Massachusetts

When husband-and-wife team Roger Brown and Linda Mason founded Bright Horizons Family Solutions in Boston in 1986, employer-sponsored, on-site child care was a new concept. Although the company now boasts more than 600 child-care centers in leading corporations worldwide, it took nearly six years to gain solid footing.

While building their business, Linda and Roger noticed the face of homelessness in their community changing. No longer did the homeless fit the typical image of the derelict man begging in the streets. New Englanders were seeing single mothers with children who had no place to turn. With their growing expertise in child care and education, Linda and Roger felt uniquely positioned to address the needs of homeless families. They envisioned creating community centers that would provide child care and education for homeless children and support services for their parents. But Bright Horizons was still a struggling new business. Financing a community program of this magnitude was out of the question.

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Eighteen months after starting Bright Horizons, Linda and Roger decided to implement their vision by starting a nonprofit organization. This allowed them to utilize Bright Horizons’ expertise to design a program and to raise funds from outside sources so as not to put a financial strain on their new company. So without telling their investors, who they feared might be concerned about the couple’s divided attention, they found a graduate student to help research child homelessness. They approached the development of the soon-to-be-dubbed Horizons for Homeless Children (HHC) much like the creation of their business: by assessing community need and competition and creating an effective service delivery model.

Linda and Roger financed the start-up of HHC by writing personal checks and asking friends and family for contributions. They hired an executive director to file the necessary paperwork and begin executing the business plan. Once the organization gained official nonprofit status, they began raising charitable donations through foundations and individuals. Though Bright Horizons did not have cash to spare, the company provided valuable in-kind services, such as materials, training, office space, and employee expertise. In fact, employees were eager to be involved in the planning stages of such a worthwhile program. By 1990, HHC was ready to begin formal operations, and it was time to let Bright Horizons’ investors know about the program.

To Roger and Linda’s surprise, Bright Horizons’ major investors were excited. Most of the investors were young venture capitalists just starting their own families, and they bought into Roger and Linda’s vision for helping homeless children just as they had bought into their for-profit business plan in 1986. A majority of the investors actually joined HHC’s board of directors and helped with fund-raising.

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HHC has had great success. It reaches over 1,100 children weekly, has trained more than 5,000 volunteers, and provides training to other agencies at national conferences. Bright Horizons still contributes financial and in-kind assistance, but it is just one of over 1,300 donors annually who support the organization’s $4 million budget and $5 million endowment.

Twenty years later, Bright Horizons has become the world’s leading provider of employer-sponsored child care, early education, and work-life solutions. It has made Fortune magazine’s list of 100 Best Companies to Work for in America for the last seven years and is on Business Ethics magazine’s list of Best Corporate Citizens. Although their mission was purely philanthropic, Linda and Roger say the creation of HHC played a role in their company’s success. It helped attract and retain employees and clients who wanted to be involved with a company that was passionate about children and children’s issues.

Common sense makes it hard to endorse the timing of their initial decision to start the foundation, but the couple maintains that companies driven by passion don’t always follow a rational path. By approaching their charity work through a nonprofit, they had the freedom to let their vision take on a life of its own and grow beyond any of Bright Horizons’ financial constraints. In retrospect, their charity work strengthened not only their business but also their relationships with venture capitalists, who appreciated the opportunity to make a community investment.

Bright Horizons used its business know-how to provide direct services to the community by creating a nonprofit with a similar mission. Although the company was in the business of child care and the new nonprofit had the same focus and a similar business model, Bright Horizons received no direct benefit to its financial bottom line. Tom’s of Maine found a way to both leverage its core business to progress toward its social mission and connect that mission to the marketing of its products.

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Cause-Related Marketing: Tom’s of Maine, Kennebunk, Maine

When Tom and Kate Chappell cofounded Tom’s of Maine in 1970, their vision was like that of many values-driven entrepreneurs. They wanted to develop socially responsible products, be profitable, and give back to the community. Their wide range of natural personal care products, biodegradable and recyclable packaging, and responsible product development and testing have made them a favorite among environmentally conscious customers. Annual sales of $50 million prove they can compete in the personal care industry.

Early on, the company committed 10 percent of its annual pretax profits to grants to nonprofit organizations and encouraged all employees to use 5 percent of their paid work time to volunteer for nonprofits. Although this commitment is remarkable, Tom and Kate felt it wasn’t enough. They wanted to raise awareness in the community and encourage others to get involved.

Tom’s designed the Common Good Partnerships (CGPs), which allowed Tom’s of Maine to partner with consumers and retailers to support community projects. CGPs have three objectives: to build sales, to build awareness of a cause or social issue, and to encourage consumers and retailers to take action. The process begins with the identification of a cause and the formation of a national partnership between Tom’s and a retailer. Tom’s then offers awareness-building materials and point-of-sale displays and asks the retailer to use these to promote the campaign. To bring the CGP to a local level, Tom’s identifies nonprofit organizations that are working on the issue in the various neighborhoods where the retailer operates.

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For example, when the Longs Drugs chain became a retail partner, Tom’s introduced Longs to the nonprofit Native American Health Centers in Oakland and San Francisco. To participate in the CGP, Longs committed to highlighting the centers in its Bay Area circulars and matching Tom’s contribution of 2,000 tubes of toothpaste with 2,000 toothbrushes. The health centers were added to Tom’s growing database of local dental clinics in need of community support. Now consumers at Bay Area Longs stores receive a free DVD and educational journal on oral health when purchasing Tom’s of Maine toothpaste, and they also see a display encouraging them to get involved with the local clinics by volunteering or contributing funds through the Tom’s of Maine Web site.⁹

Not only have the various local nonprofits received tangible support, but the CGPs have improved sales. During CGP promotional periods, stores report that sales of Tom’s featured product are boosted by as much as 30 percent, 15 to 20 percent more than with other promotions of similar products. Redemption of CGP-related coupons, which promise $1 of every purchase will be set aside for donations to CGP nonprofits, averages 13 percent, much higher than the 3 percent national average for coupon redemption.¹⁰

By refusing to be content with its own grants to the nonprofit community and challenging itself to find a way to increase the number of retailers and consumers engaged in local organizations, Tom’s found a profitable way to enhance everyone’s contributions.

Lessons Learned: Partnering with Nonprofits

Whether your goal is to reach out to millions through a cause-related marketing campaign, to help thousands through contributions to nonprofits in your community, or to make a direct impact in the lives of the clients of a specific organization, we hope that these examples have given you a place to start. We suggest you talk with entrepreneurs and nonprofit leaders in your community to find other creative models to learn from as you build a strategy where the community, the nonprofit, and the company all benefit. As you do, keep the following lessons in mind:

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• Run the program like your business. Designing an effective community involvement program requires patience, clearly defined goals, and often a test run. As is the case for a business profit center, specific giving strategies need to be evaluated periodically.
• Engage employees in the process. Including employees (who generally represent a large and diverse group) in your company’s charitable giving process enables the company to make better funding decisions and keeps employees engaged in and aware of your company’s efforts. Ease of entry is key when it comes to involving employees. Make the sign-up process simple and keep your requests for employees’ time reasonable.
• Connect your giving program to your core business. Whenever possible, tie nonprofit collaborations to your company’s objectives and core product or leverage the strengths of your company by developing a related product. Your company’s know-how, in-kind contributions, and connections will be invaluable to the nonprofit organization, and the collaboration may provide insights that end up increasing profits.
• Build a new nonprofit connected to your company’s social mission. Building a separate and independent nonprofit organization can advance a company’s social mission far beyond what typical business-nonprofit partnerships can accomplish. An independent nonprofit can also solicit contributions from other sources and generally will have board members who are independent from the company.117

You have seen how you can build a community giving program by partnering with nonprofits—a program that will both grow local value and be good for your business. In the next chapter you will learn how businesses are fostering partnerships with the natural environment that help preserve and protect local communities.